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The Supply Chain Has A Dark Secret
Decoupling from China The Crypto Blockchain to bring some supply chain secrets to light.
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In another first, American containerised imports from China surpassed by the rest of Asia in sign that diversification and decoupling are under way.
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US importers shipping more to America’s east coast ports than west coast amid global supply chain shifts
- American containerised imports from China have also been surpassed by the rest of Asia in another sign that diversification and decoupling are occurring
- Uncertainties during pandemic fuelling shifts and could lead to infrastructure revamp of ‘epic proportions’
Khushboo Razdan in New York
Published: 12:02am, 18 Jan, 2023
In October 2021, US President
Joe Biden announced that the California ports of Los Angeles and Long Beach were switching to a 24-hour, seven-day-a-week schedule to clear a months-long snarl. Supply-chain bottlenecks caused by the global
coronavirus pandemic, compounded by unexpectedly high consumer demand, had created a five-lane maritime traffic jam.
As 2022 dawned, 109 vessels idled at the port of LA waiting to dock and offload. But a year later, the traditionally bustling ports of LA and Long Beach were confronting a lull of a different sort: significantly fewer containers being delivered to California.
After moving record volumes of cargo during the pandemic, the port of LA last August lost its 22-year title as the busiest port in the US, vanquished by its east coast rival, the joint port of New York and New Jersey. The watershed month marked New York and New Jersey’s busiest August since 1956, having moved 843,191 cargo containers.
Zero container ships waited off Southern California to unload on November 22-23, a first since October 2020, according to FreightWaves SONAR, a supply-chain intelligence firm.
In all, the port of LA moved 7 per cent less cargo year on year in the first 11 months of 2022. California’s contraction spelled gains for New York and New Jersey, whose port surpassed its peers to rank as the busiest for four consecutive months from August to November.
Experts say several factors accounted for the shift. Amid fresh memories of supply-chain bottlenecks during the pandemic’s darkest days, businesses were diversifying their supply chains to reduce their reliance on “one country and one port”.
“Cargo owners are looking for more supply-chain options,” said Philip Sanfield, a port of LA spokesman. “They don’t want to have all their eggs in one basket.”
Sanfield cited labour issues as the immediate reason behind the eastward push. Dock workers at the LA port have worked without contracts since July. The protracted negotiations over better pay have stoked “fears of a strike or a lockout”, forcing shippers to divert to the east and Gulf coasts via the Panama Canal, he added.
The development coincides with declining Chinese imports to the US. Other Asian countries are sending more by comparison as Covid-related uncertainties hit Chinese manufacturing and as American efforts to diversify supply chains away from the Asian giant intensify.
China’s customs data shows that exports to the US plunged by 25 per cent in November from a year earlier after tallying a year-on-year decline of 13 per cent in October.
And the number of US-bound shipments from China fell 21 per cent between August and November, according to Project44, a supply-chain logistics company.
In contrast, shipments from members of the
Association of Southeast Asian Nations (Asean) rose 23 per cent and 22 per cent in September and October, respectively, according to the Japan Maritime Centre.
Takuma Matsuda, visiting researcher at the Japan Maritime Centre and professor at the Graduate School of Commerce at Tokyo’s Takushoku University, said that while China’s container export declined 4.7 per cent on a cumulative basis for January-November, those of Vietnam and India increased by 13.3 per cent and 14.9 per cent, respectively.
Matsuda added that in the short term, decline in production due to Covid-related lockdowns has had a significant impact.
“In the future, we believe that the issue of US-China trade friction and the shift of production away from China may become more relevant to cargo movements,” he said.
US-Taiwan trade talks prompt Beijing warning, ‘economic coercion’ on agenda
The downswing has affected the American west coast ports, which receive a majority of US-bound Chinese imports. According to data released by Descartes, a logistics metrics company, in October, the ports of LA and Long Beach registered year-on-year tumbles of 48 per cent and 31.6 per cent respectively in imports originating from China.
That month, the west coast logged a 5.5 per cent dip from September in containers coming from China, down 22.8 per cent from August.
Yet other data suggests that the shift is not solely a result of labour issues.
According to FreightWaves SONAR, China in 2016-2018 accounted for an average of 36 per cent of US import cargo tonnage, and the rest of Asia responsible for 25 per cent.
But in 2019, China’s average monthly share slipped to 31 per cent, and the rest of Asia’s share climbed to 29 per cent, the firm noted. In 2020-2021, the two each stood at 30 per cent. And in the first nine months of 2021, China’s share held at 30 per cent while the rest of Asia expanded to 32 per cent.
Data from the US Trade Representative’s office shows goods imported from Asean members were up by 115 per cent in 2020 compared with a decade earlier.
Bethann Rooney, port department director for the Port Authority of New York and New Jersey, said her port had been “receiving more from countries
India,
Bangladesh,
Vietnam,
Indonesia”. She described labour issues on the west coast as “cyclical”.
Many countries in
Southeast Asia and
South Asia tend to send more of their freight to the US east coast via the Suez Canal, which remains a substantially cheaper option despite a recent 15 per cent uptick in transit fees.
Rooney said the location of the port of New York and New Jersey had allowed it to receive cargo easily from Asia through both the Panama Canal and the Suez Canal, along with shipments from
Europe and
Africa.
Attributing the losses on the west coast to China’s Covid situation, Rooney said the LA port had been hurt because of its heavy reliance on “one region of the world”.
“When you look at the last several months, manufacturing in China has been reduced,” she said. “There’s factories all over that are closed or operating at 50 per cent capacity. They’re now talking about an extended
Lunar New Year.”
Due to Covid infections, some Chinese factories have shut down weeks earlier than usual for the Lunar New Year holiday, which begins this year on Sunday. Traditionally, China observes a seven-day holiday starting on the Lunar New Year’s first day.
But Sanfield of the port of LA stressed that China was still a “powerhouse and will continue to be” even as countries in Southeast Asia were “coming on”.
“This is what we call China-plus-one, China-plus-plus, and China-plus-plus-plus strategies,” said Nikhil Vyas of the USC Marshall Centre for Global Supply Chain Management in Los Angeles. He estimated it would take 18 to 24 months for the impact on the volume of containers to materialise.
Vyas said diversions and diversification could add extra costs but that “consumers are willing to support a small price increase” in favour of more resilient and agile supply chains.
Yet cheaper gas and fuel prices also are likely to keep shipping prices low, helpful for the Biden administration as it seeks to ease inflation and recessionary fears.
Meanwhile, recent polls suggest American consumers have begun to care about where products are made and if consumer brands align with their core values on issues like the
environment and
human rights.
An April 2022 survey by the Harris Poll, a market research firm, showed 82 per cent of American shoppers wanted a consumer brand’s values to “align with their own, and they’ll vote with their wallet if they don’t feel a match”.
About 38 per cent of American consumers “always or usually check the country-of-origin information before they purchase clothing”, according to a Lifestyle Monitor for 2020-2021.
Vyas believed it was difficult to estimate the extent of future
decoupling. He expected about 20 to 30 per cent of manufacturing to move out of China over the next decade.
China records second-lowest economic growth figure in almost 50 years after Covid-ravaged 2022
“Certainly, as soon as you go away from China, into the other countries, New York/New Jersey becomes a much more viable option,” he said.
However, owing to low consumer demand and an inventory glut, total container volume was expected to fall by 8.4 per cent, 19.1 per cent year on year in January and February 2023 respectively, according to the National Retail Federation. In March, estimates suggest a 15.2 per cent drop from a year ago.
Adam Compain of Project44 predicted that efforts to decouple from China would change global shipping and the logistics industry as we know it.
If other developing nations somehow managed to meet global demand for consumer goods like China has done for decades, “rather than a few large manufacturing and port zones that enable much of the world’s exports, the volume would be spread among multiple smaller ports in smaller nations”, he said.
Compain added that because ports in many lesser-developed countries were not yet equipped to accommodate today’s modern vessels, the altered dynamic would require an infrastructure revamp of “epic proportions”.
